United Technologies Automotive Inc. History

Company History:

United Technologies Automotive is a global designer and supplier of components and systems for automotive manufacturers. Its products include a broad array of automobile components ranging from sun shades to electrical distribution systems. UTA, a subsidiary of the giant United Technologies Corporation, was formed in 1979 when the Essex Group was merged with Ambac Industries. The Sheller-Globe Corporation, in addition to a number of smaller producers of automotive products, were later absorbed.

The Essex Wire Corporation was founded in Detroit in 1930 when Addison E. Holton acquired the wire and cable division of the Ford Motor Company. Ford had been producing internal wire assemblies for its cars since the early 1920s but had begun to farm out secondary production. The large automaker reached an agreement with Holton whereby it leased a portion of its sprawling Highland Park plant to the new firm, and Essex met Ford's wire needs in addition to manufacturing for the general market.

As the demand for auto wire grew, Holton found that the small corner of the Highland Park plant was no longer sufficient to meet the company's manufacturing needs. So, during the early 1930s Essex acquired the Chicago Transformer Company (an Indiana automotive switch manufacturer) and the Indiana Rubber and Insulated Wire Company. But Essex's most significant acquisition was made in 1936 with the purchase of the wire manufacturing facilities of the Dudlo Manufacturing Company in Fort Wayne, Indiana. Holton was searching for facilities in which to manufacture the enamelled magnet wire that was in great demand by electric motor manufacturers. Dudlo had been a pioneer in the production of this wire, but its 38,000-square-foot plant had fallen victim to the Great Depression and had been idle for three years. The revived plant became Essex's largest manufacturing facility and would eventually become the company's corporate headquarters.

By the early 1940s Essex was an established independent manufacturing firm with 12 plants in several states. The company's diverse line of products included electrical wire assemblies for cars, small transformers, magnet wire, power cords for electrical equipment manufacturers, and cable wire for the construction industry. Like many American companies, Essex's focus during the mid-1940s was on wartime needs. The organization quickly adapted its facilities to produce the field wire and airplane wire assemblies needed for the war effort.

The postwar boom of the 1950s was a period of further diversification and growth for Essex. Essex's expertise in electric wiring systems was in great demand by the growing electric appliance industry. Automobile manufacturers were also calling on Essex to produce the increasingly sophisticated wire assemblies demanded by new car designs. In response to these growing markets, the company, which was still controlled by its founder Addison Holton, expanded its product line to include electrical insulating materials and electrical and electro-magnetic controls and systems. New plants were added to accommodate increased demand. By 1959, Essex's earnings had grown to over $8 million, an almost fourfold increase in just two years.

The early 1960s was a period of tremendous growth for Essex. The decade saw the company transform itself from a moderate-sized manufacturing firm to an international competitor in the automotive equipment industry. This transition, however, was not accomplished without growing pains. In 1959 Walter Probst succeeded company founder Holton as president of Essex. He began a reorganization of the 30-year-old firm. The head office was moved to Fort Wayne and the business was consolidated into six divisions.

In spite of its rapid post war expansion, Essex had remained a very tightly held private corporation. Probst's vision for a multi-national corporation, however, could not succeed without a new influx of capital. In 1965 Essex shares were offered on the New York Stock Exchange. Although the offering was successful, the Chapin family, which had owned six percent of Essex through the 1950s, sued the company for $12 million, claiming that management had misrepresented the company's financial position in order to repurchase shares at a reduced cost before the initial public offering. The suit was settled in 1967, but not without damage to the Essex's reputation. Labor relations also became a serious problem for Essex during that period. An unusually violent strike closed the company's Hillsdale, Michigan magnet wire plant for four months in the spring of 1964, and a series of labor disputes followed during the next few years.

With the new capital provided by the sale of shares to the public, Essex was in a position to begin serious expansion. From 1967 to 1972 Essex acquired 16 manufacturing companies with a diverse range of products. In addition to its longstanding automotive wire assemblies and electrical components, Essex now also produced extruded aluminum products, plumbing and hydraulic fittings, and plastic moldings. It also operated a copper mining and exploration division. To reflect this diversification, in 1968 Essex Wire Corp. changed its name to Essex International. By 1974 Essex had lived up to its new name by opening plants in Spain, The United Kingdom, Canada, and Mexico, in addition to its nearly 100 American manufacturing plants. Essex's 1973 earnings had reached $40 million on sales of $845 million, attracting the attention of United Aircraft Corporation's president and CEO Harry Gray.

Harry Gray had been appointed president of the United Aircraft Corporation in 1971. United Aircraft was at that time one of the largest companies in the country and had a long history of manufacturing airplanes and helicopters for the American military. Gray was determined to diversify United Aircraft in order to diminish the company's reliance on defense contracts. Flourishing Essex International became his first acquisition. Under United Aircraft, soon to be renamed United Technologies, Essex operated as the Essex Group but continued to produce essentially the same range of products as it had before the change in ownership.

Through the 1970s, Gray continued his program of growing and diversifying United Technologies through acquisitions. Among his many new purchases was Ambac Industries. Ambac, founded in 1906 as the American Bosch Magneto Corp, had begun life as a manufacturer of small magnet-powered generators for early internal combustion engines. By the 1950s the company was a leading producer of automobile voltage regulators and ignition equipment for commercial stationary engines. When Gray became interested in Ambac in 1978, the company was manufacturing medical, scientific, and environmental equipment in addition to its traditional fuel injection systems. At the time of its acquisition by United Technologies, Ambac's annual profits were about $16 million on sales of $225 million. Gray surprised the business community by paying $220 million for Ambac even though the company's underlying net assets were worth only about $130 million. The outstanding $90 million was written off as "goodwill" in a move that raised eyebrows among some analysts.

In 1979, as part of an attempt to reorganize the growing number of companies entering the United Technologies stable, the electrical and electronics operations of the Essex Group and the operations of Ambac Industries were merged to form United Technologies Automotive, which became a unit of the United Technologies Industrial Products Division. The newly formed unit established its headquarters in Dearborn, Michigan, strategically placed in the heart of the automotive industry. The principal products of UTA remained Essex's wire assemblies and electrical components, and Ambac's fuel injection systems. But in 1985 UTA acquired Alma Plastics, which added interior plastic trim and moldings to the product line. By 1987 sales to the automotive industry had reached about $155 million and were accounting for more than half of the Industrial Products Division of United Technologies.

Although Harry Gray's aggressive policy of growth through acquisitions had built United Technologies into one of the 20 largest industrial corporations in the United States, in the mid-1980s a number of Gray's riskier ventures turned sour. Indeed, net income dropped by about $600 million between 1985 and 1986. After a great deal of internal turmoil amongst UTC management, Gray stepped down as CEO of the troubled firm in 1986. Robert Daniell was appointed in his place. Daniell immediately undertook a major restructuring of UTC, streamlining the unwieldy company by selling off divisions that did not fit into United Technologies' main product lines. In 1988, as part of this reorganization, the wire manufacturing operations of Essex were spun off as an independent company, although the new enterprise continued to produce the wire for the automotive wire assemblies and electronic devices manufactured by United Technologies Automotive. Daniell's reorganization of UTC also included the dissolution of The Industrial Products Division, thus making United Technologies Automotive an independent business unit within UTC.

By the late 1980s, with the major building blocks of the restructuring in place, UTC began to look once again towards strategic expansion, although this time only businesses that would mesh with their major product lines would be considered. The Sheller-Globe Corporation was acquired in 1989 and merged into the operations of UTA. Sheller-Globe was formed in 1966 when the Sheller Manufacturing Corp. was merged into Globe-Wernicke Industries. Sheller had been the primary producer of independently manufactured steering wheels for some 30 years, and Globe was a leading producer of automotive replacement parts. By the time of the UTC acquisition, the company had largely abandoned replacement part sales in favor of original equipment interior automotive products. UTA was seeking to expand its line of interior trim products, and Sheller-Globe's steering wheels and other interior components were ideally suited to these goals.

Throughout the 1980s and 1990s UTA made extensive efforts to expand its international sales. During the mid-1980s the company entered into joint agreements with Renault, Grundig, and Furukawa Electric to produce wiring systems in Europe and Asia. UTA was also quick to respond to the emergence of new foreign markets created by the changing political climate of the 1990s. The company opened a plant in Godollo, Hungary in 1991 and entered into joint manufacturing agreements with Dongfeng-Citroen of China for production of electrical distribution systems in 1994. By 1994 UTA had manufacturing facilities in 14 countries worldwide in addition to a dozen international sales and engineering offices. In the same year, UTA's international sales had reached $939 million, which was approximately 35 percent of total revenues.

Back at home, UTA increased sales to domestic automakers by expanding their product line. By the mid-1990s, UTA was producing a huge variety of automotive products, ranging from electrical components like junction boxes and DC motors to interior trim including mirrors, visors, and door trim. It was also still producing the wire assemblies and steering wheels that had been the mainstay of Essex and Sheller-Globe. As American automobile manufacturers began increasingly to look towards suppliers to provide not only individual components but overall design and engineering capabilities, UTA expanded its engineering and product development programs. Ford Motor Company, which had long been UTA's major domestic customer, granted the company full-service supplier status in 1995, reaffirming the strong relationship between the two companies.

In 1994, with sales of $2.6 billion, United Technologies decided that UTA's performance was strong enough to warrant a public offering of UTA stock and thereby unlock some of the parent company's investment in the automotive subsidiary. UTC was to remain in control of the company, however, by retaining 60 percent of the equity interest and by electing 80 percent of UTA's directors. The offering, however, was not favorably received by the investment community, which was generally unwilling to meet the targeted stock price. The IPO was postponed indefinitely. In spite of this setback, United Technologies Automotive remained a significant contributor to UTC revenues into the mid-1990s.

Further Reading:

• Ankenbruck, John, "Essex Group of United Technologies," The Fort Wayne Story: A Pictorial History, Woodland Hills, Calif.: Windsor Publications, 1980, pp. 178-179.
• Fernandez, Ronald, Excess Profits: The Rise of United Technologies, Reading, Mass.: Addison-Wesley, 1983.
• Naj, Amal Kumar, "Offerings of Stock Planned for United Technologies Unit," Wall Street Journal, January 20, 1994, p. A6.
• "Roy D. Chapin Heirs Sue Essex Wire Charging Erroneous Information," Wall Street Journal, December 16, 1966, p. 4.

Source: International Directory of Company Histories, Vol. 15. St. James Press, 1996.

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